Growth in the generic sterile manufacturing industry has spawned a series of big buyouts in the last few years, and Germany’s Fresenius is looking to M&A to build its expertise with a potential deal for a U.S.-based player.
Shares of Akorn closed up more than 18% at $29.77 on the news Friday and were up again today in premarket trading, pushing its market cap to $3.7 billion. Shares still remain far below the $56 a share at which they traded two years ago before accounting problems tied to its buyout of Hi-Tech Pharmacal and other producers gut-kicked its share price.
Fresenius’ specialty is injected drugs, and buying Akorn would build on that. Akorn has sterile manufacturing sites in Somerset, New Jersey, Paonta Sahib, India, and Decatur, Illinois. It also has a plant in Amityville, New York, that manufactures OTC and generic products, including difficult-to-manufacture liquid and semisolid dosage forms, inhalation products and sterile ophthalmic and otic products.
Akorn's manufacturing operations have had some issues in recent years that have played out with a series of recalls as well as some regulatory concerns. Last June, one of its sterile facilities in Decatur was hit with a Form 483 with half a dozen observations. The company quickly responded and in its last earnings report in March said the plant has gotten the all-clear from the FDA.
Fresenius has had its own issues with FDA concerns. A sterile injectables plant in India was slapped with a warning letter in 2013. The year before a plant in New York was also written up in a warning letter.
There has been ongoing consolidation in the generic sterile manufacturing segment of the industry, where expertise in the tricky-to-produce products draws premiums but also offers buyers significant growth. Pfizer paid $15 billion in 2015 to buy Hospira, the leader in generic sterile injectable drugs. At the other end of the scale, Sweden-based contract player Recipharm closed a $105.2 million deal last year to get it most of Indian sterile injectables CMO Nitin Lifesciences.
If Fresenius does close a deal with Akorn, it will be the second piece of M&A action for Stephan Sturm since he became Fresenius SE CEO in July, points out Bloomberg, which first reported the talks between Fresenius and Akorn. Last year the company struck a $6.11 billion deal to buy Spanish private hospital group Quironsalud.